**3. Data and methodology**

#### **3.1 Sample**

This chapter uses an unbalanced panel data of 66 IBs over 18 countries over the period 2007–2015 after eliminating banks with insufficient data on *Shari'ah* governance and performance. We choose the sample's starting period of 2007 in order to

<sup>2</sup> Several variables relating to the SSB characteristics may determine how effective the SSB is in conducting its task, namely, SSB size, doctoral qualification, reputation, cross-membership and expertise [19, 29–32].

*Relevance of* Shari'ah *Governance in Driving Performance of Islamic… DOI: http://dx.doi.org/10.5772/intechopen.92368*

capture the effect of the financial crisis of 2008; therefore, the study covers the period from 2007 to 2015, including crisis period (2007–2009) following the previous studies such as [36]. The data are merged from BankScope and World Bank country-level macroeconomic data with hand-collected data on SSB characteristics from annual reports of IBs for the sample period. The sample distribution is presented in **Table 1**.

#### **3.2 Measures of variables**

account while studying the impact of SSB is important. Thus, there is an open empirical research question as to whether the SSB supervision, as measured by an

Literature reveals that comparing the impact of the SSB on IBs' performance during crisis periods has not been fully investigated in previous studies. Responding to what has been discussed above, this chapter aims to extend the investigation of [15] by examining the impact of SSB supervision on IBs' performance during crisis

The SSB has a supra authority to prevent the BoDs from charging interest (*riba*)

*H2: Effective SSB, as represented by the SSB score, will be positively associated with*

This chapter uses an unbalanced panel data of 66 IBs over 18 countries over the period 2007–2015 after eliminating banks with insufficient data on *Shari'ah* governance and performance. We choose the sample's starting period of 2007 in order to

<sup>2</sup> Several variables relating to the SSB characteristics may determine how effective the SSB is in conducting its task, namely, SSB size, doctoral qualification, reputation, cross-membership and expertise

*IBs' performance even for the period during the financial crisis of 2008.*

payments and to avoid doubtful (*gharar*) investments in their products [15]. Although economic calculation and the profit concerns of the IBs are allocated to the BoD, the appreciation of the licit character of this profit is allocated to the SSB [10]. Thus, SSBs play an important role in mitigating agency problems by acting as an additional monitoring mechanism [3, 33, 34]. SSBs offer an extra possible reduction in agency costs for IBs through organizational moral accountability constraints and shaping managerial behavior [3, 34]. As Mohammed and Muhammed [4] state, SSB is one of the four key stakeholders affecting the financial performance

of IBs, besides the management, the ownership and the external auditor. As mentioned above, SSB characteristics, for example, SSB size, crossmembership, doctoral qualification, reputation and expertise, may determine how effective the SSB is in performing its task [19, 32, 35]. Basically, SSBs' total effect should be measured using an SSB measurement that can reflect the total effect of SSB based on the most important characteristics that affect SSBs' performance [26]. Based on that, many studies used SSB score that captures the total impact of these SSB characteristics to measure SSB supervision, for examples [19, 27]. Recently, Nomran and Haron [27] find that SSBs positively affect Southeast Asia IBs' performance. That is to say that, SSB score provides the basis for the following hypotheses: *H1: Effective SSB, as represented by the SSB score, will be positively associated with*

, contributes to better performance of IBs during crisis periods.

SSB score that takes into consideration the impact of the important SSB

characteristics<sup>2</sup>

*Banking and Finance*

*IBs' performance.*

**3.1 Sample**

[19, 29–32].

**40**

**3. Data and methodology**

**2. Hypotheses development**

periods by focusing on the financial crisis of 2008.

**2.1** *Shari'ah* **supervision and bank performance**

In this study, the dependent variable, which is the performance of IBs, is measured by ROA and ROE following the previous studies [15, 32].

The explanatory variables used are measured as the following. *Shari'ah* supervision is measured using SSB score [27]. The bank characteristics (size and age) and country-specific variables (GDP and inflation rate) that may affect performance are employed as control variables following previous research [15, 27]. **Table 2** provides a summary of the measurements of the dependent, control and explanatory variables used in this study.
